Merger Agreement with Allied World Assurance Company Holdings, AG (Allied World)

6 Months Ended

Jun. 30, 2011

Merger Agreement with Allied World Assurance Company Holdings, AG ("Allied World")

Merger Agreement with Allied World Assurance Company Holdings, AG ("Allied World")

2. Merger Agreement with Allied World Assurance Company Holdings, AG (“Allied World”)

On June 12, 2011, Allied World and the Company agreed to a “merger of equals” business combination of the two companies pursuant to the terms of an Agreement and Plan of Merger, dated as of June 12, 2011 (the “Allied World Merger Agreement”), between Allied World, the Company and GO Sub, LLC, a wholly-owned subsidiary of Allied World.  Pursuant to the terms of the Allied World Merger Agreement, GO Sub, LLC will merge with and into the Company (the “Merger”), with the Company surviving as a wholly-owned subsidiary of Allied World. Upon completion of the Merger, Allied World will be the parent company of the Company and Allied World’s name will be changed to “TransAllied Group Holdings, AG”.  Pursuant to the terms and conditions of the Allied World Merger Agreement, stockholders of the Company will be entitled to receive 0.88 common shares of Allied World for each share of the Company’s common stock (and cash in lieu of any fractional shares) (the “Exchange Ratio”).

The Company expects to incur transaction expenses totaling approximately $30 million in connection with the Merger. Results for the second quarter and first six months of 2011 include approximately $6 million of costs incurred related to the Merger as part of “other expenses, net.” Approximately $22 million of the total expenses expected to be incurred is contingent on the successful closing of the Merger and is not included in the results of the second quarter or first six months of 2011.

Upon closing of the Merger, the Company’s outstanding stock-based compensation awards will be converted into awards of Allied World common shares based on the Exchange Ratio.

The Allied World Merger Agreement contains certain termination rights for both the Company and Allied World (each a “Merger Party”) and provides for payments upon termination of the Allied World Merger Agreement. A Merger Party may be required to pay termination fees and/or reimburse merger-related expenses to the other Merger Party in the below special circumstances:

·      $115 million if terminated as a result of an adverse change in the recommendation of the Merger Party’s board of directors

·      $35 million, plus the reimbursement of expenses up to a maximum amount of $35 million, if terminated as a result of the stockholders failing to approve the transaction

·      Up to a maximum reimbursement of $35 million of expenses in connection with the proposed transaction, if terminated due to certain breaches of the Allied World Merger Agreement

On July 8, 2011, Allied World filed a preliminary S-4/joint proxy statement with the Securities and Exchange Commission (the “SEC”) related to the Allied World Merger Agreement. The Merger is subject to approval by the stockholders of the Company and Allied World, receipt of regulatory approvals and notices and other customary closing conditions. The Merger is expected to close in the fourth quarter of 2011, although there can be no assurance that the parties will be able to do so.

See Note 14 for legal proceedings related to the Merger.

See Note 15 for discussion of Validus Holdings, Ltd.’s (“Validus”) exchange offer to acquire all of the outstanding common shares of the Company and related matters.